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Good morning. My name is Jack, and I will be your conference operator today. At this time, I would like to welcome everyone to the Corus Entertainment Q1 2019 Analyst and Investor Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to Mr. Doug Murphy, President and CEO of Corus Entertainment.
Thank you, operator. And good morning, everyone, and happy new year. I'm Doug Murphy. Welcome to Corus Entertainment Fiscal 2019 First Quarter Analyst Call. Joining me today is John Gossling, Executive Vice President and Chief Financial Officer.Before I read the cautionary statement, I'd like to remind everyone that there are a series of slides that accompany this morning's call. You can find them on our website at www.corusent.com under the Investor Relations section. Now the standard cautionary statement on Slide 2. This discussion contains forward-looking statements that may involve risks and uncertainties. Additional information concerning factors that could cause additional (sic) [ actual ] results to materially differ from those in our forward-looking statements are contained in the company's filings with the Canadian securities administrators on SEDAR. I'll now turn to our first quarter results on Slide 3. We have had a tremendous start to our year. Our Q1 results reflect disciplined execution of this year's operating plan as we continue to make smart targeted investments that support our longer-term strategic priorities. Let's start with some key financial highlights before I turn it over to John, who will provide more detail. The revenue increase of 2% exceeded our expectations this quarter. Notably, this outcome was largely driven by 4% growth in television advertising revenue. That is the best result we have seen in over a year. Our strong fall schedule combined with continued progress implementing our advanced advertising and data solutions led the way in Q1 as we maximize our audiences and effectively monetize those same audiences and benefited from recent improvement in television advertising demand. This revenue increase, coupled with disciplined expense control, resulted in consolidated segment profit growth of 8% while consolidated segment profit margins improved by 2 percentage points over last year. This clearly demonstrates the power of our improved operating leverage as we continue to drive efficiencies throughout the business. The benefits of our revised Capital Allocation Policy are also increasingly evident. We have made considerable progress in paying down our debt and reducing our leverage this quarter. While we expect continued variability from quarter-to-quarter, these results give us confidence that our plan is working. Now on to Slide 4. Global had a terrific fall season, delivering a 15% increase in overall audience. We had 8 programs in the top 20 for adults 25-54 and 9 programs in the top 20 for women 25-54 with New Amsterdam ranking in the top 10 as the #1 new drama this fall. As we launched our winter schedule, we are excited to introduce yet another strong lineup of new and returning hits to Global, including New Amsterdam; FBI; Celebrity Big Brother; and the debut of athletic competition series, The Titan Games with Dwayne "The Rock" Johnson. On to Slide 5. This fall, in our specialty channel portfolio, Corus owned 13 of the top 20 entertainment specialty channels. Further, 11 of our specialty programs were in the top 20 rankers for both adult 25 to 54 and women 25 to 54. As usual, the top 5 kids networks for Corus networks are clear demonstration of our expertise in creating engaging and differentiated brand environments for this younger audience. This winter, we have the return of fan favorite lifestyle shows Top Chef Canada on Food Network and Corus Studios' $ave My Reno on HGTV as well as new seasons of hit dramas Marvel’s Runaways and Supergirl on Showcase. On to Slide 6. Our commitment to building scale through partnerships is essential to delivering great results in today's changing market. A perfect example of this is our new multi-platform channel partnership with Crown Media's iconic Hallmark Channel. As the exclusive Canadian TV partner for Crown Media Networks, Corus acquired the licensing rights to all movies and series produced for Hallmark. Audiences have fallen in love with these romantic comedies. In fact, W claimed the top spot amongst specialty channels across the key demos, driven by the Hallmark Channel's Countdown to Christmas, and was the #1 most watched channel in Canada on a weekend, surpassing all conventional and sports networks. The recent launch of Hallmark's Winterfest is expected to build on this momentum. On to Slide 7. We continue to advance our Own More Content strategies through Nelvana and Corus Studios. Investments in owned content both drive audiences on our network and provide opportunities to diversify revenue through international sales. At Nelvana, our focus is on the expansion of our slate with an emphasis on coproduction partnerships with global children's content companies. In fact, we are currently on track to increase production by more than 50% this year with a strong lineup of series in the pipeline such as Esme & Roy, part of our coproduction partnership with Sesame Workshop; Corn & Peg, part of our coproduction partnership with Nickelodeon; homegrown show D.N.Ace with Dentsu and the Oriental Light and Magic Company, the producer of Pokémon, for distribution in Japan; new series Agent Binky, Pets of the Universe, which is based on our popular Kids Can Press title; and the second season of Hotel Transylvania: The Series, which airs on the Disney Channel in the U.S. and their global territories as well as Corus' TELETOON channel in Canada. We're also very excited about Nelvana's new animated short The Most Magnificent Thing, which is based on our highly successful Kids Can Press book, one of our most successful titles ever with nearly 0.5 million copies sold to date. This production is a feature film quality animated short produced in 4K HDR and is the first of its kind in Nelvana, demonstrating our commitment to evolve the capabilities and the potential of our Nelvana studio. We will be submitting this animated short to a number of film festivals around the world later this year. On to Slide 8. At Corus Studios, we are also making waves in the global content marketplace. Our shows are widely available on almost every continent, and we are currently focused on expanding our sales reach deep into the U.S. market. We previously announced the production of 11 series this year, a significant increase over 4 series in the prior year. Our efforts to branch out into new programming genres such is automotive, food, travel and escape, science and docuseries have been well received in the international markets. With new seasons of hit home renovation series Masters of Flip and Backyard Builds, the emerging properties -- and emerging properties such as Rust Valley Restorers and Fire Masters, we've established a strong foundation for future growth. I'm on Slide 9. A key component of our business is to follow our viewers and listeners across new and growing platforms. We are strategically investing in more on-demand content and streaming rights for premium content to satisfy our audiences. We have spoken previously of our premium video-on-demand strategy and the success we are experiencing in growing audiences as audiences discover and binge watch our hit shows. In addition, we are seeing revenues grow as advertisers value the uncluttered environment of video-on-demand, benefiting from dynamic ad insertions and its reduced ad load. Today, I'd like to talk about our digital business further and in particular, our Global Go app and our popular online news source Globalnews.ca. This quarter, we launched our most widely distributed app, Global Go, on Amazon Fire TV. Within the first few weeks of launch, we saw about 30,000 downloads of the app. Combined with our previous launch of Global Go on Google Chromecast and Apple TV, we expect this to accelerate the pace of adoption for the app, contributing new digital advertising inventory and in turn, revenues. We continue to see impressive growth from the expanding presence of Global News on Globalnews.ca online. In our first quarter, average monthly unique visitors grew 22% and average monthly video views grew by over 200% when compared to last year. As we continue to successfully drive audience growth across these platforms, we see ongoing potential for further increases in revenue. As highlighted on Slide 10, investments to enhance our suite of advanced advertising solutions and data analytics capabilities are the cornerstone of our strategy to transform how TV is sold. Corus strongly advocates that now is the time to align the TV, media and distribution industry in Canada around a shared technology road map. We have adopted an advocacy approach as we work to rally the industry and its stakeholders around this vision. We believe that a unique opportunity exists to build an infrastructure that is developed and deployed in tandem with the rollout of new video platforms for subscribers in Canada. As competitive intensity increases in the market from unregulated global players, we need to be agile and aligned in our response with an ability to quickly roll out innovative advertising solutions. Increasingly, it is apparent that audience-based buying solutions create meaningful value for our advertisers, and demand remains strong. In Q1, 15% of English television advertising was generated through targeted audience-based buying. We generated $42 million through audience-based buying in the quarter. That's up 68% over prior year. Our aspiration is our automated buying platform, CYNCH, once scaled, will introduce a new way to buy television advertising, simplifying the process and further accelerating our industry shift to audience-based buying while offering a user experience that emulates our digital competitors. It is clear to us that advertisers in Canada have steered too far into digital advertising. The broad reach of television combined with its proven ability to engage audiences in a more targeted manner has compelling value particularly when considering the increasing concerns about digital environment safety and privacy. This leaves us to believe there will be -- there will continue to be a recalibration of media mix models in the quarters ahead. Turning to Slide 11. 10 months ago, we advanced our strategic priority to expand into new and adjacent markets with the launch of so.da, a new social digital advertising agency. As advertisers seek out new ways to engage with audiences on social platforms, we can now offer them innovative solutions that leverage our in-house social strategy, analytics, community management and content production expertise to deliver on their objectives. In fact, earlier this week, we announced that so.da has been named the social agency for premium hair care brand John Frieda in Canada. And while it's still early days for so.da, this is an excellent example of an encouraging response from our clients and evidence of an emerging opportunity in this evolving marketplace. With that, I'll now turn things over to John, who will walk us through our great start to fiscal 2019.
Thanks very much, Doug, and good morning, everyone. I'll start on Slide 12. As Doug mentioned earlier, we delivered Q1 results that exceeded our overall expectations. Corus consolidated revenue increased to $467 million for the quarter, and that was up 2% from the prior year. We benefited from a strong fall schedule on Global and improved television advertising market conditions that you've heard about. This revenue improvement and our continued focus on expense control resulted in consolidated segment profit of $190 million for the quarter, and that was up 8% over the prior year. Robust segment profit margins -- sorry, consolidated segment profit margin was 41% for the quarter, up from 39% last year. Consolidated net income attributable to shareholders for the quarter was $60 million or $0.28 per share, and that compares to $78 million or $0.38 per share in the prior year. And that's primarily due to an accounting estimate change related to the useful life of our television brand intangible assets in the first quarter. For first quarter fiscal 2019, this resulted in an additional $35 million in amortization expense and reduced net income attributable to shareholders by $26 million or $0.12 per basic share. Further details can be found in this quarter's Management Discussion and Analysis. Turning to free cash flow. $42 million was lower than the $83 million in the prior year quarter, and this reflects an increase in working capital in line with the strong revenue performance this quarter as well as a $25 million onetime item last year related to the termination of interest rate swaps. That said, we're on track with where we expected to be at this point in the year. Our free cash flow continues to be a fundamental point of strength, enabling us to remain steadfast in our goal to reduce our leverage to below 3x net debt to segment profit. Our revised Capital Allocation Policy announced in the third quarter last year commenced in the first quarter of fiscal 2019. This change has already enabled us to increase the pace of delevering, resulting in net debt to segment profit of 3.15x at the end of Q1 compared to 3.28x at the end of last fiscal. This is ahead of plan and is a result of our strong segment profit growth and accelerated debt repayment in the quarter. Looking ahead to Q2, we would note that last year, within the corporate segment, we did have an expense recovery of over $6 million late stock-based compensation, and we do not anticipate that will recur this year. Now turning to TV results for the first quarter, as detailed on Slide 13. Overall TV segment revenues were up 3%, and that's largely attributable to the impressive TV advertising revenue growth of 4% in the quarter. We benefited from a strong fall schedule, continued uptake of our advanced advertising offerings and most importantly, improved overall market demand. We are encouraged by the progress we have made, and we continue to experience improving market condition with our current pacing indicating we're on track to deliver year-over-year growth in TV advertising in Q2. That said, our long-term visibility beyond Q2 thus remain limited. Subscriber revenue met our expectations of flat versus the prior year quarter. The 3% increase in merchandising, distribution and other revenues over the prior year reflects higher episodic deliveries from Nelvana and Corus Studios as well as growth of Toon Boom and Kids Can Press, offset by lower merchandising revenues. TV expenses in the first quarter decreased by 2% over the prior year with direct cost of sales down 2% and a decrease in G&A expenses of 3%. So as a result, TV segment profit increased 9% in the first quarter, reflecting the revenue growth, particularly from TV advertising, and continued expense control. TV segment profit margins were 43%, which improved from 41% in the prior year. Now turning to Radio results on Slide 14. Radio segment revenues decreased 2% in Q1. Improvements in entertainment, government and pharmaceutical advertising were not sufficient to offset weakness in the automotive, financial services and telecom advertising categories. We continue, however, to see the benefits of our revenue diversification strategy in markets where we have radio and television as we focus on those clients using both local TV and radio advertising solutions. Radio segment profit increased -- sorry, decreased 4% in the quarter given the challenging market conditions. However, segment profit margins on Radio, 32%, were consistent with the prior year, reflecting our continued focus on expense control. Before I turn things back over to Doug, I would highlight that, as anticipated, we declared a quarterly dividend of $0.06 per Class B share today, payable in March, as detailed in our press release this morning. We have strong free cash flow. We continue to focus on providing a market-competitive return, and we are strengthening our balance sheet through debt repayment and making prudent investments for future growth. With that, back to you, Doug.
.Thanks, John. I'm now on Slide 15. We're off to a strong start to the year, thanks to the unwavering focus and determination of our entire team. We compete in a dynamic and fast-changing media marketplace. As I've said previously, we cannot see around the corner. That said, we are disciplined operators, and we remain steadfast in our long-term commitment to optimize our core business. We are confident that our strategic priorities to own and control more content, engage our audiences and expand to new and adjacent markets will deliver long-term resilience and stability as we work to diversify our sources of revenue and build for the future as a leading Canadian media company and a global content studio. I'm on to Slide 16. Looking ahead, we have a lot to be excited about. Our data analytics and advanced advertising initiatives are gaining traction as we work to change the way we sell television and promote our shows. The arrival of new distribution platforms in Canada will provide Corus with the ability to reach audiences who prefer to stream content, and that will deliver new sources of revenue. Our slate of owned content is growing every quarter, generating an important global source of revenue from both broadcasters and streaming platforms. And our improved revenue and segment profit this quarter and our continued focus on free cash flow is advancing our very important goal to strengthen our balance sheet and create improved financial flexibility. In closing, I would like to thank you all for your continued support of Corus as we work to deliver on our long-term plan. John and I now will be happy to take any questions you may have. Over to you, operator.
[Operator Instructions] Your first question comes from the line of Adam Shine with National Bank Financial.
So Doug, with respect to TV, I mean, obviously, we saw $10 million of ad growth year-over-year, $17 million or so of growth, as you alluded to, from the advanced audio -- advertising solutions. Can you speak to some of the pockets of weakness perhaps? I mean, obviously, there were a couple of specialty TV assets that were attempted to be sold last year. Notwithstanding the W strength and the Global strength, maybe there were a few others areas where there's either a greater push on your part to turn things around or perhaps we get into a discussion of eventual divestitures of the noncore assets. Maybe we'll start there, and just another one for John later on free cash flow.
I might argue that we're actually pretty happy with all of our portfolio of channels in the speciality piece of the equation. This first quarter, the story here is improved demand for television advertising. And I'm sure we'll talk about conventional during the call, but on specialty, we have a very smart approach to how we segment the channels in terms of price. A lot of demand was coming in, so we're able to kind of fill the bucket on our smaller services as well as on our larger services. So really, we're very pleased with the performance of all the services in the quarter. As regards to the competition bureau decision on H&S, unfortunate, but we've moved on. Those are strong channels. They're performing well. They're both growing, and they generate significant cash. The team's doing fantastic in Quebec and onwards and upwards.
Okay, perfect. And obviously, last year, we saw, in the context of advertising, strong in the first part of the Q1 and sort of it unraveled thereafter. Obviously, we saw continued momentum -- or I presume you saw continued momentum throughout the Q1. Can you speak to some of the dynamic, I mean, besides some of the advertising initiatives that you're talking about from the new management efforts? Will we also ultimately see some of those dollars coming in from other digital areas ultimately migrating back to traditional TV?
I think for sure, we're seeing that, Adam. We're seeing -- there's a number of dynamics at play here. For sure, what we saw beginning -- it began to happen in Q4 and then Q1 and throughout the year. The pacing is much ahead of this time last year. Advertisers are laying their campaigns in early. They want to get their impressions. They know that inventory is tighter than it was this time last year, and so they're laying in their campaigns earlier. And so we're seeing pacing up meaningfully throughout the rest of the year. We're being cautious in terms of characterizing that as confidence that we can get to growth in the back half of the year. We're not going to go there only because the marketplace is so dynamic. But at the root of what's happening is you've got campaigns laying their weight in early because they want to make sure they get on TV. You've got media mix modeling, which is now indicating that advertisers are oversteered into digital, and so they're reallocating those dollars into the reach and frequency that TV provides. And they're realizing that the ROI in their campaigns are improving as they up-weight their TV buys. And then we've got audience growth because our networks are performing well. So that trifecta is really playing out today in the revenue numbers.
Okay. And maybe just turning to John on free cash flow that you alluded to. Obviously, you had the onetime item last year in regards to the termination of the interest rate swap. We did see working capital usage tick up nearly $20 million. Is there any timing factors here just to consider because, notwithstanding the strength of free cash flow last year and perhaps an expectation that free cash flow will be down versus last year, we're still looking for some significant free cash flow out of you, correct, this year?
Absolutely. The first quarter working capital build was a little greater than what we normally see in the first quarter just given the strength of the ad revenue we just talked about. So we would expect, given the seasonality that we're now heading into in Q2, that we'll get some of that back. There's obviously big push to collect those advertising dollars now that we're through the busy fall season. So our goal for the year -- and this will depend on how revenue trends in the back half, but our goal for the year is still for working capital to provide a source of cash in here. So we want the working capital to come down this year. I think, for now, it's a timing issue and it's a traditional Q1 and then Q3 will be the same timing issue, but we're going to be on that for sure in Q2 and then pushing hard in Q4 as we continue throughout the year.
Your next question comes from the line of Aravinda Galappatthige with Canaccord Genuity.
Doug, I wanted to kind of delve into the targeted ad buying numbers that you gave. Obviously, helpful to have those numbers. I'm trying to get a sense of how much upside there is there. I know that in terms of the data that you need for that, you -- from my knowledge, from my understanding, you don't get it from all that BDUs at this point. I know you get it from Shaw. Can you just talk to sort of the availability of data to drive that program towards becoming a bigger part of your ad revenue piece? And secondly, a little bit on the mix. Clearly, Global had a great quarter. Can you just give me a sense of how the specialty channels did as a group as well?
Thank you, Aravinda, and appreciate the opening accolades. The -- we are collecting data from more than just Shaw. As a basic matter of principle, when we're doing our carriage agreements now, we are including access to data on set-top box return path in all of our deals. So it's -- and this is part of our advocacy for an industry solution. We're uniquely positioned in Canada. We've got 3 large broadcasters, media companies, 2 of which are owned by large distributors. Those 2 large distributors really are driving the rollout of 2 new video distribution platforms, X1 and MediaFirst, respectively. And we believe that this is the time to get it right and to optimize the media broadcasting business in Canada in concert with an industry solution. So our advocacy is resolute, and when we're looking at new carriage agreements, data comes with. So we've got a diversified source of data now, east and west across Canada. We're also working with sources of data from connected TVs, for example; from apps; other video distribution platforms. So our strongly held view is that as the quarters tick by here, our data sources will increase and further provide the necessary information to advance our targeting activities. And then on your question about specialty, I mean, Global was really the star of the quarter. Recall now we have the ability to take price on Global. It's got a -- it's a dynamic rate card on Global, and so we took advantage of that throughout the quarter. The specialty channels, they trade on a different pricing mechanism. They've got high and low demand rate cards. And so we saw more of the revenue growth on Global, respectively, than necessarily on specialty, but the specialty channels also experienced some growth.
Okay. And just a quick question on the expense side for John. Obviously, good cost containment. I don't expect programming expenses to be down for the year, I suspect. But just give me a sense of where your cost-containment efforts are and where you feel sort of some of the upside is to drive greater margins.
Sure, Aravinda. On programming specifically, the -- certainly the pattern of how that will play quarterly this year is likely to be different. Remember last year was an Olympics year, and we had some delayed programming that came out of Q2 and Q3 and pushed into Q4 last year. So that will be a slightly different pattern, probably more normal pattern this year. Programming cost on Global on the prime time programming out of Hollywood is very, very difficult to predict just given that we're completely tied to schedules of the U.S. networks. And when they air, then we also air and we pay. So programming, I'd say, overall, it's our biggest expense, and certainly, it is a big focus. I would hope and we're expecting to get some reduction there. It wouldn't be huge, but there's definitely a lot of focus there to try to work that down a little bit this year. So that's part of the containment efforts. And I think on top of that, across the board, we're continuing to look at facilities. Everything is on the table, and we're just running things very, very tight. And that message really is ingrained now in the culture. It's one of our big imperatives this year. So I think you're going to see it across the board. I would say, given the trajectory on revenues we've seen in Q1 and as I've mentioned and Doug's talked about as well for Q2, some of the revenue does come with incremental cost. So to the extent that we're driving some good cost growth -- some of the revenue has different gross margin profile associated with it, and we're likely to see that as we go forward a little bit. So don't be surprised if some of that starts to come in as we get a better revenue situation. And I also mentioned the stock-based comp. That was a recovery that was large in Q2 last year and then actually in Q3 and Q4 as well. So we wouldn't expect that to happen again this year. In fact, it will be the opposite. And the swing will take us from a recovery of $6 million in Q2 last year to somewhat positive, we would expect, this year each quarter. So that will be a pretty big factor on the expense line that you'll be able to see because it's a separate item within the corporate segment reporting. But that will be an important thing to watch out for.
I'm going to just add because I think it's important. We operate with sort of 3 first principles: maximize audiences, monetize audiences and rationalize our operating model. Both -- everybody around the building here and then all of our local markets understands that. So we're balancing making smart investments and content to monetize audiences. The Hallmark investment was a brilliant example. Kudos to our programming team who ran that one down. And W was the #1 channel. I mean, that's remarkable, especially when the leads and the [ rappers ] are doing as well as they are. So we're balancing the need to stay disciplined and expense control. We're not confused about that. But we're also in the business of growing audiences and maximizing our revenue, so it's always a tension there. But as John notes, we have a very disciplined focus on being strong operators, and costs are always part of that conversation.
Your next question comes from the line of Vince Valentini with TD Securities.
A couple of questions here. One, you obviously in the past few quarters have steered away from wanting to give us guidance for the next quarter on advertising revenue because the visibility was too low. This quarter, you've gone back to saying that, John. So is -- I just want to parse that a little bit. Is that because your December was so strong that you know you'll be positive on TV ad revenues in the second quarter? Or is it more a reflection of visibility improving in some of the bookings that you received for the back half of the quarter that gives you confidence you can stay in the black?
Yes. It's actually both, and they're related. So we talked on the last call about kind of the shape of the curve when it comes to the revenue coming in during the quarter. And what we've seen and really what caught us last year in Q1 was there's a lot more booking that happens early, as Doug mentioned, and then it does slow down at the end of the quarter. Whereas, in the past, the bookings were a little more steady through the quarter so it was a ramp that went on racing out of the quarter. So that's what really has changed our view of visibility. I'd say, at this point, where we're at for Q2, we're very confident that there's going to be growth. We know we've got some new revenue streams, and we know that the bookings look very strong so that we can make that comment. Going out, Doug did mention Q3 and Q4. Again, the pacing right now looks good, but because of the shape of how those orders come in, being a little bit unpredictable, it's hard to draw a firm conclusion that we want to share. But we're certainly feeling a lot better.
Great. Second question is on market share versus the overall market. So if -- the audience rating -- or audience levels are up 15% at Global in the first quarter. Do you think that was picking eyeballs away from CTV and City and other networks? Or do you get the sense that TV viewership overall was up for everybody?
I think what's happening, Vince, is we're actually taking audiences away from the streaming platforms in the fall. What we're seeing here is that great shows get audiences. And recall that 3/4 of Canadians still have cable subscriptions, and many of them also have Netflix, Amazon, many have other OTT players. But the hit shows are all in broadcast television in the fall, both on CTV and on Global. So I think there's a -- we've talked in the past about it's not "either/or" it's "and." I mean, viewers will go to the best shows and they'll find them wherever they are, and network television has a lot of the best shows in the fall.
Great. Two more hopefully little ones. One is a question regarding the data feeds coming back from the distributors, and you're putting that in your carriage agreements. What about ad insertion on video-on-demand? I've actually noticed on my Rogers system when I pull up a Global show, there's nothing but ads for other Global shows on there. I don't see any third-party advertising. I don't know if that's just because Rogers doesn't allow you to do it or you haven't sold the advertising. But are you building that into your carriage agreements too that you get to do ad insertion into VOD?
Yes. So I don't know what shows you're watching, but there should definitely be third-party commercials in those. What we'll typically do on a network hour is on VOD on Global, for example, there'd be -- I think it's -- I think we've got 4 minutes of promos and 2.5 minutes of ad units. So it's a reduced ad load, which is why it's attractive to advertisers because there's less clutter and their commercials stand out. And furthermore, viewers such as yourself, Vince, can't fast-forward through the view. So that's just a general -- that's the construct. Yes, when we look at these carriage agreements, there's a bunch of things we're working on. This gets to the road map conversation. We want to be able to share data. We want to be able to enable ad insertion on VOD across the whole country. And ultimately, we want to enable, and this is a couple of years down the road yet, but the local live addressable, so dropping an ad unit into a targeted postal code region. That capability is on the horizon. The road maps are being built accordingly. And so we're having the same conversation with all of the carry -- all of the distributors to afford -- or effect that opportunity.
Okay. And last, John, sorry, this accounting for amortization, is that $25.7 million a bit of a onetime item? Or is that a new run rate that we'll see advertising expense up that much every quarter going forward?
So I'm glad you asked that question. So Vince, that number is the net of tax number, right? The gross number incremental is about $35 million. So what we're expecting on that is it will be similar in Q2 and then it will step down and be about half of that for the remainder of the year, the incremental impact. And that's because there's one brand or channel in the mix that is going to be flipped to a new brand in Q3. So we've accelerated the amortization on that one. So call it $35 million for Q1 and Q2, and then it'll be half of that for Q3 and Q4.
And sorry, looking into next year and year beyond, it stays at those levels or...
It should, yes. It'll be similar. I mean, there's nothing on the horizon that would really change it. So...
And as part of that, between 3 and 20 years, I don't suppose you want to tell us which channels are getting amortized over 3 years.
No, not really, but you can probably guess which are which. I mean, it ties into the portfolio optimization work we've done and the tiering that Doug talked about just in terms of the way we look at the various channels. So it's all related to that. Vince, can we -- I'll get you offline because I'm curious what version of Rogers set-top box you have and why you're VOD is behaving that way. That's the old version of VOD where we didn't have commercials so we put promos in. And then maybe that if you're on an excellent box, ironically, that probably doesn't support dynamic ad insertion right now. So anyway, I'm just curious what you have. I'll talk to you after.
Yes. It is X1, but yes, we'll just talk after.
Your next question comes from the line of Jeff Fan with Scotiabank.
I want to just -- maybe staying back and unpack some of the themes that, Doug, you raised with respect to digitals may have been -- have always -- advertising may have always steered to digital and also ratings for Global being so strong in the fall. I guess when we sit back, I mean, audiences now are just -- consumers are just going from platform to platform and show to show, wherever the hits are. How much of this do you think is more just the short-term correction given the strength that you saw in Global ratings and then what we may have seen with digital platforms over the last half of '18 that caused advertisers to kind of correct some of their spend as opposed to kind of a full recovery of TV as a platform? And maybe just in the Global viewership growth of 15%, there had been, I think, a 3-year decline on viewership in the fall of each year according to Numeris. Do you think that's going to recover -- see some recovery, especially versus the digital platforms like Netflix, specifically on the audience?
So the first question you were trying to get at was regarding the sustainability of the viewership on Global -- I'm just trying to -- can you just hit me again on the first question, Jeff?
Yes. Just in terms of how sustainable some of these -- whether this is just a correction in the short term for advertisers. And then the second part is really the viewership.
The -- I think what's happening here is, as I noted in my prior comment, that network television has the hit shows at the moment. And I think you've mentioned that viewers will go from platform to platform and find the shows that they want. And people talk about cord cutting and cord shaving. I'd like to think about it as rebundling. So you may -- and that's why you want to have the biggest and best channels. This is why Corus has 13 of top of the 20 channel. So if you do, do -- if you do want to shave some cord to cut your bills so you can buy Netflix or Apple or Amazon, we'll still be left in your bundle, and you'll put on your other forms of content. And our job is to be the best programmers and pick and produce and make the best shows and cross promote the best shows within our network universe. So that, to me, kind of is the rub. I can foresee in the future now that it's -- there's a seamless behavior across multiple platforms that if the next hit show was on a streaming platform, then that will be challenging for the network broadcasters. So if we continue to do a good job and drive hit shows on our networks, then we'll be fine. So it's sort of like -- it's a bit of a new era in terms of it's not "either/or", it's "and." And new platforms such as X1 really speak to the sort of seamlessness of the offering to viewers, and that's, I think, what's important. So I think we've kind of got to a sort of a rationalized state at the moment where people have kind of digested all that behavior.
And do you think that as you look out to your content lineup, your shows lineup through the rest of the year, in the fiscal year, that you'll be able to demonstrate the same audience share performance that you have seen in the fall?
Well, I'd say what's good, Jeff, is -- again, as I say, my tagline here is I can't see around the corner. But what we know is we have returning seasons of previous hit shows. Those types of shows have baked in viewership to come back to see them, and so that's important. The other thing I would just say, also back to your other question is Numeris, this time last year, changed their panels to better improve their measurement and to fully capture the entire universe of viewing behavior, and that's when we saw some meaningful declines in audiences. I can tell you that in the fall of this year, audiences -- and this is not just for Corus, it's for CTV, it's for everybody else. Audiences have stabilized. So what appears now is that Numeris has caught up to viewer behavior, and we've got kind of a base case environment to build from.
Your next question comes from the line of David McFadgen with Cormark Securities.
So a couple of questions. So it looks like the TV advertising revenue growth was primarily driven by Global, and it seems like it's primarily driven by increased pricing. Is that correct?
It's not primarily but that's a factor.
Okay. But has the overall audience grown for your specialty channels?
We're still -- Global was the standout of the season. Some specialty channels are up, some are down. It's -- you've seen the -- we still have modest subscriber melt in the system, which you're aware of, David. And so it really depends on where the strong shows are. We had a -- as I mentioned earlier, had a standout season with significant audience growth over the prior year. Other services did not perform as strongly.
Okay. And so the confidence you have for Q2, that's primarily driven by Global as well, correct?
Well, it is a system, right? I mean, everything -- people come in to buy impressions and we sell impressions across the system, both specialty and conventional. So they all work in unison to create campaigns. So our confidence is we know what's on the books and we know what inventory we have available and we know how strong demand remains. And that gives us the ability to say with confidence that Q2 is going to be another quarter of growth.
Okay. Because, in the past, we've seen weakness in the overall TV ad market for quite some time. There's been lack of demand. Now all of a sudden, there's increased demand. Is this a Corus phenomenon? Or do you think it's an industry phenomenon in this quarter?
That's a great question. So I think there's a couple of things. I think we're doing -- we're very pleased with our performance, but I think there's a bunch of important dynamics at play here, which I'm just going to hit again. One is media mix modeling. We're over rotated into digital, certainly in Canada, and people realizing that they can increase their campaign ROIs by allocating an incremental growth to television. That's happening. The other thing that's happening is the targeting. The targeting we're doing is maybe a Corus-specific thing at the moment, but that's also helping to rotate dollars back into television. Because now people can get better targeted ads and they can get the reach and frequency that television provides, so that's important. The other thing, I think, that's important to recognize and this is -- if there ever is a tell that TV has got a strong future, this is it. If you look at the top 50 new television advertisers, the vast majority of them are direct-to-consumer operators. The vast majority of them are companies that started digitally and now are moving dollars to television as they're growing. Example is Wayfair, Warby Parker, examples being -- look at all the commercials for Amazon and Google. They're not doing that because it doesn't work. So we're seeing sort of new advertisers coming into the mix, in addition to the traditional top advertisers who are -- who've been in TV for decades, who are now recalibrating their media mix modeling accordingly. So those are some of the factors that are providing a stronger demand environment.
Okay. And can you give us an indication in terms of percentage like you achieved in Q1 in terms of, say, CTM on Global, something like that?
I wouldn't want to quote price, David, sorry.
Okay. I'm just wondering how much of that 4% was pricing driven versus just more inventory being sold but...
So I mean, respectfully, it's sort of not material because our job is to manage inventory. And that's about impressions and audiences. But it's also to manage yields, and that's about our investments in data and ad tech. So we can pull a couple levers to get the revenue growth, and that's, I think, the important thing to note, is -- that's why we're focusing so significantly on yield activities because whatever you want to assume about audience levels, we can do a better job on yield and we'll continue to focus on that.
Okay. So just a question on the merchandising distribution business. Are you still looking for that to be up high single digit this year, the revenue?
I think we're going to be in that zone. We're working on a number of different fronts. Obviously, the launch of Bakugan is the real promising opportunity on the horizon, and we're working pretty closely with our partner, Spin Master, in that regard. That will really sort of only start to hit the -- our numbers in the fourth quarter with any kind of prominence, but really it's a 2020 story for us. But we're -- as I mentioned in my remarks, on the P&D line, on the -- the content business remains a key focus of ours. And while we're low single digits in this quarter of growth, we are stoking the fire on both Nelvana and Corus Studios and meaningfully ramping up the episodic investment and delivery, and that will start to come to the fore in the coming year and should start to show up, I think, more prominently in the last quarter of this fiscal.
David, we said on the last call that if you're talking about that entire other line that includes merch and the Nelvana production and distribution, I mean, that benefited in Q4 from a big SVOD sale. And I think we said in the Q4 call that ex that, yes, we would expect to see strong growth on that line in '19. But that was a fairly big nut that we obviously aren't expecting to see again this year. Just given the term of that particular deal, it takes us beyond fiscal '19.
Your next question comes from the line of Drew McReynolds with RBC Capital Markets.
Just a great TV quarter. Congrats, Doug, on that. Maybe just a couple of follow-ups here. First, on the CTM, in your comments, Doug, you alluded to some difference in just how you sell conventional versus specialty. Can you just flesh that out a little bit more for us?
So conventional basically has the ability to escalate price based on demand really limitlessly, ultimately. And so that gives us a lot of pricing flexibility based on the market conditions. Specialty has traditionally traded on fixed rate cards in low and high demand season. So you have Q1, Q3 -- these are our fiscal quarters now, not calendar. Q1, Q3 would be high demand. Q2, Q4 will be low demand. And there'll be different trading practices accordingly. We're actually working and have been successful in so doing with our agencies to start thinking about changing that trading discipline to give us some more flexibility. That's an ongoing conversation. And we'd like to be able to sort of put our money where our mouth is in terms of audiences and pricing, but that's going to be an ongoing conversation.
Okay. That's helpful. On the TV growth -- advertising growth of 4%, you alluded a lot in your comments, which were very helpful, on ad tech and what it's doing. Are you able to look at that plus 4% and strip out kind of what your ad tech initiatives in aggregate contribute to that growth in the quarter? Or is it a little bit too early days?
Well, we -- yes, we are able to but we'll not necessarily break it down for you. I mean, what I'll say is we have got the pedal down on this part of the business. There is a significant ongoing investment in people, technology, process to further accelerate our move into transforming how we sell television. And that is, I think, at the root of the cautious optimism we have in the next few years, that transacting television in a more targeted, automated manner with sort of unanimity around the industry as to how we address this, I think, bodes well for the future state of television certainly in Canada. And we're not alone. I mean, everybody is doing this. NBCU is doing it. Sky in the U.K. is doing it. Everybody's looking at various ways to target for television, and everybody's having reasonable level of success accordingly.
Okay. No, that's great. Another question, big picture, follows up a few kind of from Jeff. When you look at the viewership and the audience levels, and not just for Q1 in Global versus specialty, just overall, I know you probably have data you're not going to share with us. But just at a high level, when you look at the percentage of viewing that is on demand versus a live linear, so to speak, just wondering if you could give us your thoughts on maybe what that is today, how that evolves. And the context here is just looking at our own recent TV survey where consumers highly value the on-demand functionality of OTT, and just curious to know how aggressively you can push down that channel -- or that capability kind of over the next few years.
Yes. That's a huge initiative for us, and our view is that we have to redefine how television is considered. It's not just linear, it should be linear and on-demand. So if you want to watch FBI, you necessarily have to wait once a week. Once a given episode is aired, it goes on -- it gets stacked on on-demand. So we sold -- and Vince earlier is talking about he's watching our shows on X1. We've sold a deep in-season stack of our top 10 channels through Rogers and Shaw, and we're seeing some decent audience. But it's still small. It's still single-digit percentages vis-à-vis the total linear viewership, Drew. But we're also working with Bell and TELUS. And we're saying, "Guys, you know what, you serve your audiences, put these shows, put television on-demand. There should be deep in-season stacks on-demand and on linear." That's -- why should TV advocate the on-demand binge viewing world? And so we're also advocating for that because that's what viewers want, as you rightly note.
Yes. And Drew, we're investing in those rights, obviously, as part of our program buys so -- to be able to view that. The one thing that's a bit surprising, I think, sometimes and a little bit anecdotal but backed up by the research, you think that people only watch sports live. And everything else, you can either watch on your PVR or you can watch on VOD catch-up. But it turns out that on certain shows, and it varies by show and by network, over 90% of our viewing is live on some of the premieres. So it is all over the place, and PVR still sells a big piece in the middle between VOD and live viewing. So it's interesting, but we do -- we're able to capture all that audience for the most part.
I want to just follow up this one because if you step back, big picture, like you and Jeff are asking here, when you think about -- so let's agree for a second that audience-based buying makes a ton of sense, that an automated platform makes a ton of sense, that data will continue to be available so all that's going to happen. So let's go back and say audience behavior. All the broadcasters in Canada can put all their hit shows, once they air on linear, back on -- stacked in on-demand. You can certainly imagine that you're going to build your overall audiences because more will be consuming on-demand. And then if that's measured, which we're working with Numeris to do so, then all of a sudden, you have maybe nice growth in your on-demand viewing, which may help to offset some of the fragmentation we're seeing because of platforms. And so that -- therein lies part of the product offering strategy, is to make sure that our content is available to our consumers wherever they want to and once measured, then we can monetize it through DAI and VOD. So all the pieces that you can see, they fit together.
Yes. I mean, certainly, Doug, it makes a ton of sense. Last question for me on the Radio market, looked like a relatively routine quarter. Just maybe comment on anything you want to flag there, either local, national, regional ratings.
I'll -- yes. Basically, all of our smaller stations in our Diary markets are all doing fantastic. Most of our large cluster stations are doing well. We're challenged in Toronto and, to a lesser extent, in Edmonton. Thus, ratings are rancorous. That's ours to own. We have to kind of do some -- we have plans in place to make some changes in terms of our programming strategies in those 2 markets. So those are, of course, specific situations. From a macro basis, I'd say that we are seeing softness in Alberta, not surprising in that market. And we're also starting to see some categories of advertising, notably automotive, being negatively impacted by the tariffs and trade issues we're seeing south of the border. So that's showing up a little bit. I wouldn't say it's life threatening, but we're starting to see it.
Your next question comes from the line of Maher Yaghi with Desjardins.
Many of my questions have been asked already, but maybe if I can take an even bigger-picture question here. We've seen in the States a lot of the media companies snapped back at Netflix and pushed back on selling them or giving them licenses to some of their shows. So we're seeing Netflix invest a lot more money now in producing new shows. Are you worried that this can create even more competition down the road as these shows start piling up on either Netflix or with these media companies in the States going direct to the consumer?
There's a lot in there, Maher, but I'll...
Yes, I know, sorry. Last question, I guess.
. No, no, no, it's okay. It's a good question. And -- okay, a couple of things. First of all, the studios are pulling back their content from Netflix. I'll remind everybody that 3/4 of Netflix views are licensed content from studios, at least that's what we understand from our research. So I think that's a challenging situation for them as they get less content. They just renewed Friends for a whole bunch of money from Warner. But I think they're going to have to ramp up the originals because they'll have less studio content to serve to their viewers. So I'm not concerned about that. We are in dialogue with those partners of ours on the channel side who have announced they're looking at direct-to-consumer offerings. And so our contention is that we'll likely be in a position to be a partner of some sort with these new DTC offers. What is true and arguable is that all these big studios still benefit from the economics of what we would describe as the discrete rights market. So they're not going to shoot themselves on the foot. They still have quarterly numbers they have to hit as well. So it's going to be, I think, very much, again, I said it before, not an either/or" but an "and." It will be kind of working together to sort through what the best approach is in any given market. And we don't have a crystal ball so I can't really forecast it. But what we do have is great relationships with a lot of existing content partners with the Corus system, and we're in active discussion with all of them on how they're approaching the direct-to-consumer marketplace in Canada.
So if I can maybe summarize what you're saying here is that you -- at this point in time, you're not concerned about these big conglomerates, media companies in the States, where they're going direct to the consumer in the States. The strategy at this point in time is not to do the same in Canada?
I wouldn't say that. We don't -- we're not entirely sure as how they're doing. But I know our friends at Disney, for example, they're focused solely on the U.S. marketplace at the moment and they're focused on the significant work to integrate the Fox acquisition. So I think what I'm saying is the services that are existing from our traditional partners today are still very economically important to all of our businesses collectively and that many of these new product offerings will have new and different content. And so they're going to protect the exclusivity of the channel business, and they're going to load up other content offerings on the direct-to-consumer platforms. That's how we've come to understand their various strategies.
Okay. And sorry, just one last question, maybe to John. We've seen very strong cost control continuing to be pushed. You've had a few restructuring activities in the latest quarter. Can you tell us if there would be additional -- I mean, significant amount of restructuring in the future quarters or a lot of that effort is done at this point?
Well, certainly, Maher. You're right, Q1 was a big quarter primarily from some real estate activities both in Vancouver and Toronto. We butt out of some space and had to clean that up. But I think you'll see some restructuring ongoing. I wouldn't expect it to be as high as it was in Q1 for that reason. But I think we've shown that we tend to have something every quarter. Just because of the focus, it just leads us there.
[Operator Instructions] Your next question comes from the line of Tim Casey with BMO.
My questions have been asked and answered.
There are no further questions at this time. I would now like to turn the call back over to Mr. Doug Murphy for closing remarks.
Thank you, operator, and thank you, everybody, for your questions, your interest in Corus. And we look forward to seeing you in 2019. Have a great day. Bye-bye now.
This concludes today's conference call. We thank you for your participation. You may now disconnect.